When’s the best time to buy a home? Many real estate experts might say right now. Interest rates are at historic lows and home prices are the more affordable than they’ve been in 20 years according to the Housing Opportunity Index. Still, the best time to buy is whenever it makes the most sense given your finances, your stage of life, your family circumstance, and your vision for the future. Premature home buying–buying a home before your finances and the rest of your life are ready for the long-term financial commitment to a mortgage–is how many families ended up losing their homes.
To help you avoid some of the common mistakes, here are 5 steps toward sustainable homeownership:
1. Write out your “Vision of Home.â€
Get clear on your vision, not just of your home, but for your life as a homeowner, and write it down. Where do you work, for whom, and how much? What work do you do? Do you entertain? Garden? Do you spend your weekends fixing your home, or walking downtown? Who lives with you? What do you all do in your spare time? This vision will drive a number of the other decisions you’ll make along your home buying process.
2. Do some research.
Get online and start getting a sense for what states, cities, and even neighborhoods you would like to live in. Educate yourself about the going home prices in those areas; most sites will also give you a VERY rough idea of what the monthly costs associated with a given home would be. Use a site like Trulia.com, where you can both search for properties and ask questions about your local market from an online community of local real estate pros.
3. Get clear on your current financials.
Go to AnnualCreditReport.com and pull all 3 credit scores. Get a clear understanding of all of your consumer, student and other debt — including how much you owe, to whom, and how much your monthly payments are. Also make sure you are clear on all your income and other expenses. From there, formulate a clear idea on what the maximum amount of money you want to spend on housing is.
4. Meet with local real estate professionals.
Get referrals from family or friends, or connect with a local real estate broker and mortgage professional on a site like Trulia.com. Sit down and talk with the mortgage broker to find out what it will take to qualify for the general price range you think:
- Find out how much cash you’ll need as a down payment and for closing costs. Today’s buyers normally need 3.5 to 7 percent of the purchase price of their home, in cash, to close the deal with a Federal Housing Administration-insured loan. Visit HUD.gov for more information on low-down payment FHA loans.
- Research first-time buyer assistance programs. One of the few programs that still offers a wide array of resources for buyers across the country can be found at NACA.com.
- Review any bills you need to pay down or derogatory credit marks you need to address — and how — to qualify for a home loan.
5. Set up an action plan with a step-by-step plan for the following:
- Completions. Set up a plan for “completingâ€ bills you want to pay to free up cash for your mortgage payment, or bills you need to pay to qualify for a home loan.
- Savings. Decide how much you will put aside every paycheck or month toward your savings target — then get started!
- Budget. A friend of mine calls this a “Map of Intentions.â€ Set up a monthly spending plan prioritized in alignment with your home buying goals and the rest of your “Vision of Home.â€ Visit ConsciousBookkeeping.com for more information, if you get stuck at this step.
- Credit. Make sure your action plan includes the steps provided by the mortgage broker you consulted in Step 4, above, to get you to the score you need to qualify for the loan and interest rate you want. Some credit actions have counterintuitive impacts on your credit, so consult closely with your mortgage broker before doing things like paying all of your credit cards all the way off.
- Life, Family and Career. Before buying a home, get a level of comfort that you can commit to owning that home for 5 to 10 years, longer if your town has been hard hit by the foreclosure crisis. If you feel uncertain about the long-term employment prospects in your town, think carefully before you buy a home there. Also, avoid changing careers right before you buy.
Tara-Nicholle Nelson is a real estate broker and attorney, author of two real estate guides for women and the Consumer Educator for real estate search engine Trulia.com. Tara is also the Founder and Chief Visionary of REThinkRealEstate.com, which offers expert guidance on real estate decision making.